The oil industry's biggestnames gather this week at CERAWeek, the largest energy industryget-together in the Americas, at a time when U.S. shaleproduction is booming, global demand is rising and crude pricesare at a sweet spot for both big U.S. producers and OPEC.
Last year's decision by the Organization of the PetroleumExporting Countries to restrain output has drained the globalglut that occupied much of the conversation at 2017's gathering.With oil prices up about 15 percent since oil ministersand top executives convened here last year, fears have recededfor a slugfest of OPEC vs. U.S. shale. Rising prices have U.S. shale producers pumping more,sending total U.S. output to an all-time record above 10 millionbarrels per day. This year, the United States could surpassRussia as the world's largest oil producer. OPEC, meanwhile, has shown no signs of moving to producemore, with output from members at a 10-month low. The cartel'sleaders have even expressed interest in keeping some productioncurbs in place through 2019. Oil ministers and their advisers will use the conference toput shale under a microscope, said Dan Yergin, vice chairman ofconference organizer IHS Markit and a PulitzerPrize-winning oil historian. "OPEC is still really struggling to understand: 'What isthis new oil business called shale?'" said Yergin. "Thisconference is a field trip for OPEC to a different reality inoil." They have scheduled dinners with shale executives andfinanciers for the second time in two years, underscoring thematuration of a relationship between big petrostates and aonce-upstart industry that weathered OPEC's best efforts to buryit under a supply glut from 2014 to 2016. Shale has emerged stronger from that period with the PermianBasin, the largest U.S. oilfield, now producing nearly 3 millionbarrels of oil per day, triple that of 2009. Presentations willlook at shale's rising role in global markets and the potentialfor future North American production and export growth. "The Permian is just now coming into its own," said RandyFoutch, chief executive officer of shale producer LaredoPetroleum Inc , which plans to boost output 10 percentthis year. "We no longer have to find oil and gas. We've foundit, and will pump it." OPEC says it wants to encourage moderation by shalecompanies as well as its own members. Shale firms often usehedges, or financial contracts that lock in a price for futureproduction, to guarantee profits. These contracts protect themshould prices slip. "We all should look with responsibility to the market inorder to keep the balance in the market as much as we can so asnot to harm investors," said Ali Nazar, Iraq's nationalrepresentative to OPEC. OPEC views shale as a monolith rather than a collection ofindependent companies, and hopes executives will say they willkeep U.S. output under 10 million barrels per day. But theorganization also recognizes shale producers would be violatingU.S. antitrust law if they agreed to collective pricing oroutput pacts, one OPEC source told Reuters. The U.S. Energy Information Administration said on Tuesdayit expects domestic oil production to surpass 11 million barrelsper day late this year. ELECTRIC CARS & BIG DATA Global oil industry players are also concerned about threatsfrom renewable energy technologies and rapid changes to theautomobile industry. Majors including BP Plc haveforecast that gasoline use will decline as electric vehicleusage grows. General Motors Co Chief Executive Officer Mary Barra,in her first visit to the oil conference, is expected to detailplans by the largest U.S. automaker to launch 20 new electricvehicles by 2023. Exxon Mobil Corp and others have said they expectrising petrochemical and aviation fuel demand to offset a dropin demand for liquid fuels such as gasoline. The oil industry is also funding research into big-data,cloud computing and applying new technology to its operations tocut costs and boost production. In a sign of that convergence,the head of Alphabet Inc's Google Cloud division alsowill attend the conference. "The U.S. shale industry has turned out to be amazinglyinnovative and it's like open-source software, with everyoneexperimenting and learning from one another," said Yergin. (Reporting by Ernest Scheyder; additional reporting by AhmadGhaddar in Berlin and Rania El Gamal in DubaiEditing by Gary McWilliams and David Gregorio)